Energy companies lead Spanish stock market decline amid tax debate | Financial markets

Energy companies led the Spanish stock market’s decline, driven by debates over taxation in Spain, with the likelihood that an emergency tax taxing the sector will become permanent. Redeia shares fell 3.9% on the stock market, followed by Endesa and Naturgy, which fell 3.5% and 1.3% respectively. Enagás and Iberdrola also fell, losing 2.3% and 1.7% respectively, while Acciona corrected 4.5% on a day when energy prices in the European oil and gas sector registered slight gains. The only Spanish energy company to avoid a fall was Repsol, which rose 0.1% thanks to a strong 3% rise in Brent crude prices.

The possibility of converting emergency taxes on energy companies and the banking sector into permanent ones, already proposed since late last year and becoming increasingly prominent as 2025 budget negotiations progressed, has hit the sector. Although the measure would require legislative changes and parliamentary approval, a constant rate would mean a reduction in structural benefits. In addition to a special tax for energy companies, these measures will mean an extension of the emergency rate for banks. Both taxes are paid by indebted companies, meaning the 2023 tax was paid in 2024 and an extension will be required to collect the 2024 tax (to be paid in 2025). The estimated income from both figures (banking and energy) is around 3.5 billion euros per year.

Both taxes were introduced temporarily in 2022 as part of measures to cushion the impact of rising prices after the outbreak of war in Ukraine and have already been extended into this year, although the energy tax has been slightly modified due to legal requirements. NVG after protests started by Repsol. In fact, the oil company is one of the affected companies that has expressed the greatest opposition to the tax, which arose as the companies’ contribution to emergency revenues generated by rising energy prices during the war. Last September, Repsol CEO Josu John Imaz advocated its suppression and said that “the sooner it goes away and we normalize the situation from a financial point of view, the more we will accelerate investment.” Oil companies admitted last year that they had halted or paralyzed $16.5 billion in investments because of the tax.

The International Monetary Fund (IMF) said in the same spirit that it warned the executive in June that they should be “limited and temporary,” given that they could be “particularly distortive and create uncertainty” by discouraging investment. The hypothetical conversion of these rates to constants is nothing new, and even some analyst firms such as Goldman Sachs already took it for granted just a year ago. The experts of the American bank then noted that the executive branch will extend them, as well as the emergency tax on large fortunes and the wealth tax, in order to strengthen the path of fiscal consolidation and be able to allocate more budget to the autonomous communities.

It is true that, on the one hand, energy prices have been going down in the last two years – a barrel of Brent is close to $79, compared to the $122 it reached in May 2022 – and this is on the other hand. measures to mitigate the effects of rising prices were canceled. Thus, in September, VAT on basic food products – bread, eggs, vegetables or fruits – was increased from 0% to 2%, and the executive branch is studying the possibility of canceling assistance for using public transport in January. There was some acknowledgment among analyst firms that there was some overreaction in the market on Thursday. In the latest report on public utilities Goldman Sachs’ European estimates, published just a week ago, did not comment on this tax on Spanish energy companies, but instead revised upward their earnings estimates through 2026 based on the first half of the year.

The tax was even appealed by the companies themselves. The Association of Electricity Employers (Aelec), which includes Iberdrola, Endesa and EdP, filed a contentious administrative appeal at the National Court last year and called the figure “discriminatory and unjustified.” In the appeal, he argued that the rate falls on these companies’ accounts rather than their profits, unlike start-ups in Europe, and that “only a certain number of electricity companies are eligible and others, regardless of their size, are exempt.”